New requirements for upcoming annual general meetings in Austria due to the Second European Shareholder Rights Directive are on the horizon. The implementation in national law was carried out by changes in the Stock Corporation Act through the Stock Corporation Amendment Act 2019 (AktRÄG).This year sees the compensation policy for management and supervisory boards being voted on at the annual general meeting for the first time. hkp/// group experts Dr. Pia Lünstroth and Dr. Jan Dörrwächter comment on the first experiences of implementing AktRÄG.
Dr. Lünstroth, Dr. Dörrwächter, what are your first impressions regarding the implementation of AktRÄG?
Dr. Jan Dörrwächter: Preparations for this year’s annual general meeting season are entering a crucial stage. 21 days prior to the annual general meeting, the compensation policy, i.e. the description of the compensation system, must be published on the company’s website in accordance with Section 78a of the Stock Corporation Act (AktG). A few companies, whose annual general meeting dates always fall earlier, have already had to come out into the open and present their compensation policy.
Dr. Pia Lünstroth: Most companies hold their annual general meetings in April or May, a few in March or even earlier. EVN was the first to start, with its annual general meeting on January 16, and passed the first shareholder vote, the so-called Say on Pay, according to AktRÄG, with 99.87% approval. And with that, the first Austrian compensation policy was approved.
However, only around one fifth of EVN’s shares are free float ...
Dr. Pia Lünstroth: The ownership structure is decisive and not just for this vote. In this case, anchor shareholders again secured a majority with their votes.
Do you see a difference for companies with a greater free float?
Dr. Jan Dörrwächter: Absolutely, yes! For these companies, an investor-friendly description of the compensation system in their compensation policy is of key importance. Section 78a AktG does contain numerous provisions regarding the information to be disclosed. However, the compensation policy is primarily a means of communication with investors and their proxy advisors rather than being a legal document.
Seen from this perspective, what should companies pay particular attention to?
Dr. Pia Lünstroth: It’s about clear presentation, which supports straight forward understanding of complex content. This might sound a little teacher-like. But overviews in table form and graphics really facilitate the understanding of such important information. Specific areas and key words from the voting guidelines for investors and proxy advisors should also be highlighted with sufficient clarity.
Which of these do you see as being the most relevant?
Dr. Pia Lünstroth: Primarily malus and clawback but also aspects such as environmental protection, social responsibility etc. – i.e. the so-called ESG criteria. There is no getting around this in the current climate.
On the subject of clawback: Do all companies have to include appropriate clauses in their Management Board contracts according to the new regulations of the Stock Corporation Act?
Dr. Jan Dörrwächter: No, according to Section 78a (4) AktG, information on reclaiming variable compensation components only needs to be provided if available. The Stock Corporation Act doesn’t stipulate the agreement of such clauses. However, the law now recognizes such clauses.
Many investors also expect a clawback clause to be included in management contracts. This expectation is already causing pressure, isn't it?
Dr. Jan Dörrwächter: Pressure from the side of investors is undoubtedly there. However, a clawback clause should be formulated as clear as possible, with a sense of perspective and also reflect the company’s specific compensation system as well as its economic situation. We advise against short-term, blanket or one-size-fits-all solutions.
Will AktRÄG achieve its set objective of giving shareholders a greater say in the compensation of their Management Board?
Dr. Pia Lünstroth: The vote on compensation policy is an advisory one. But the actual influence of shareholders on Management Board compensation will increase. If investors reject the compensation policy, the Supervisory Board must present a reviewed, not necessarily revised, policy at the next annual general meeting.
Dr. Jan Dörrwächter: And anchor shareholders only have limited influence here, as some investors and proxy advisors exclude these from counting the voting results and expect a reaction if the approval rate is below 80%.
Dr. Lünstroth, Dr. Dörrwächter, thank you for your time.
Note: Checklist compensation policy (in German)
For companies that are currently redesigning or reviewing their compensation policy, hkp/// group offers a checklist of relevant tasks and contents.